Letta hails end of Italy's deficit procedure

29/05/2013

Barroso warns Rome cannot afford to relax

(By Paul Virgo)
Rome, May 29 - Italian Premier Enrico Letta
expressed satisfaction on Wednesday after the European
Commission recommended that an excessive-deficit procedure
against Italy be closed.
EC President Jose' Barroso, however, warned that the move
does not mean Rome can now afford to relax and Wednesday's
recommendation came with a call for a series of moves to put
Italy's economic house in order.
Nevertheless, the end of the procedure is some rare good
news for the eurozone's third-biggest economy, which is enduring
its longest recession in over 20 years.
Letta thanked his predecessor Mario Monti for getting Italy
back to fiscal discipline after the country overshot targets and
faced possible European Union sanctions.
"We are reaping the rewards of previous governments,
especially that presided over by Mario Monti, to whom I pay
personal thanks," said Letta, who reiterated his left-right
government's pledge to sticking to European-mandated fiscal
goals.
The premier also thanked the Italian people for the
"effort" they put in to swallow Monti's bitter fiscal medicine,
including raising the retirement age and a string of tax hikes
and spending cuts, and set the budget on track to be balanced in
structural terms.
The premier, whose left-right government is bidding to
combine growth-stoking measures with budgetary consolidation,
said Italians "should be proud of this result".
The EC is closing the procedure it opened in 2009 as
Rome has forecast that Italy's budget-GDP ratio will be under
the 3% threshold allowed by the European Union this year, at
2.9%.
It was 3% last year.
A country has to be within the deficit margin for two
consecutive years for the procedure to be closed.
The procedure will formally be closed after the ECOFIN and
the European Council ratify the EC's recommendation.
The end of the procedure will free up eight billion euros
for the Italian government.
This is because States that are under an excessive deficit
procedure and have a debt-GDP ratio of over 60% are obliged to
divert public money into trying to reduce that ratio. Italy's
debt-GDP ratio is around 130%.
The EC's recommendation said Italy must work to balance its
budget in structural terms next year, start cutting its public
debt and make key structural reforms, overhauling the labour
market, and the civil-justice, education and tax systems while
continuing government-spending curbs.
"We cannot say Italy has to slow down its efforts (for
fiscal consolidation) because of the very high debt level,"
Barroso said.
European Monetary and Financial Affairs Commissioner Olli
Rehn also said Italy still only had "tight margins" of manoeuvre
within its budget, adding that much has already been used up by
a plan to pay 40 billion euros of money owed by the public
sector to private suppliers.
Letta stressed earlier this week that the end of the
procedure does not mean the government has extra cash available
immediately to use for a number of pressing problems faced by
his administration.
"The closure of the EU procedure for excessive deficit is
certainly good news, but it will only have an effect on our
budget in 2014," Letta told a meeting with regional governors.
"As we know, it will not free up resources immediately".
Letta needs to find money for measures to boost jobs in
recession-hit Italy, with the number of unemployed close to
three million and almost four out of 10 young people aged
15-to-24 jobless.
He wants to avoid a 1% increase in the top band of value
added tax scheduled for July too, although Economy Minister
Fabrizio Saccomanni said Tuesday that this may not be possible.
Letta will also need around eight billion euros if he is to
satisfy demands from Silvio Berlusconi's People of Freedom (PdL)
party to scrap the IMU property tax and return revenues taken in
2012.
The PdL has threatened to withdraw its support from Letta's
government and sink it unless the tax is scrapped to respect a
key pledge Berlusconi made in the run-up to February's election.
Letta, who belongs to the centre-left Democratic Party
(PD), has suspended the IMU payments due in June and promised to
revamp the tax, but he has so far not pledged to abolish it
completely.